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The History and Profile of MiddleSex plc

MiddleSex Holdings is a diversified international company, operating in
primary industries (steel, non-ferrous metals and energy), financial
service and agriculture. Additionally, the company has trade investment
in gold and insurance businesses. It is principally engaged in the
emerging economies of the Commonwealth of Independent States (CIS) and
Central Asian republics.

The History and Profile of MiddleSex plc.

MiddleSex was founded in 1984, and originally was a small Welsh
goldmining company called Ferromet that Mainly could be described as
defunct company with a loss about 12m by the year 1991. At that stage,
the shares of the company were about .25p in the in the wake of the
disastrous career. Then in 1992 Phil Edmonds, the former English
cricketer, bought this company and renamed it after at his countryside.
But the company didn’t involve into its present shape until 1993, when
Masoud Alikhani joined the board and reversed his Russian businesses
into the company. Since then, MiddleSex has remained committed to Russia
and other CIS countries.

Over the last four years, MiddleSex has built up an impressive asset
portfolio, developed extensive experience and knowledge of Russian
industry and its Business etiquette and expanded its network of proven
contacts. MiddleSex has secured itself a fundamental and strategic role
in a number of core industries and is now focusing on five business
streams:

Steel (and direct reduced iron);

Non-ferrous metals (nickel);

Financial services ;

Energy; and

Agribusiness.

In addition, it has trade investment in gold and insurance.

(Each of this these streams in particular I’m going to describe later on
in my research paper. )

1996 proved to be a significant year for MiddleSex, in which the company
experienced strong growth. This is particularly evident in the metals
businesses, with steel being the fastest growing activity. Moreover, it
has become apparent that nickel and the agribusiness could take on a
more significant role in the MiddleSex’s future. Other noteworthy event
include the company’s appointment to GAZPROM, the world’s largest
natural gas producer, under which MiddleSex will assist GAZPROM with its
financial strategy. (In short words : GAZPROM is considering going ahead
with an innovative financial deal whose first stage will involve issuing
a Eurobond. MiddleSex - together with Interfin Services, a Russian trade
finance house that is also involved in capital markets - will advise
GAZPROM on dealing the financiers and on strategies for fundraising.
But, again, I’m going to explain in more details later on how this
alliance was built and what particularly this alliance means for
MiddleSex, because I think that this is the very important stage of the
company).

Success of every company lies in its people.

Since 1993, the main driving force behind the company has been its
Chief Executive, Masoud Alikhani. Born in Iran and educated at the
Hebrew University of Jerusalem in Israel, Mr. Alikhani’s work experience

srael, Mr. Alikhani’s work experience
spans from a kibbutz in Israel to agronomy in Iran and from
chemicals(the US chemicals, Du Pont) to securities business
(Prudential-Bache). Alikhani was one of the first to recognize the
enormous potential of Russia and other CIS countries. He had been
trading there through his private businesses and had a wide network of
contacts since 1988.

Alikhani’s plan appeared to be ambitious at first. From a small London
base he aimed to create a group specializing in trading and finance
across a number of industries in the former Russian republics. He saw a
big opportunity to provide development finance, western management
skills and reliable sources of raw material to newly privatized
countries. In October 1993, Alikhani and six Russian contacts put
Ј370,000 into MiddleSex. Other investors came up with another Ј250,000.
As well as the equity, Alikhani undertook to put enough trading through
MiddleSex to earn it Ј1 million gross profit within. Masoud Alikhani and
Phil Edmonds earlier had an agreement, once Ј 1 million in the bank,
Edmonds would let Alikhani turn MiddleSex into his own vehicle. Under
the terms of Alikhani’s first deal, MiddleSex supplied raw materials to
a Tadjikistan smelter and then exported final goods to the West. This
arrangement soon turned to be very profitable and Alikhani began
haunting for new ventures.

At that time Alikhani understood that the company had changed its image
completely, and had gone to a much higher lever, so it desperately
needed a well known person with a great huge worldwide experience. Ant
that was the time when Edmonds stood down from the chairmanship and Lord
Owen turned up. A former foreign secretary and long-time European Union
peace negotiator in the troubled Balkans .Also has a deep understanding
of the mentality of the Slavic people and how to conduct business with
them.

In 1996 another well known person in business has joint the company.
Fahrad Moshiri, formerly with Ernst & Young and Deloitte & Touche turned
up as Managing director in MiddleSex. He was mainly responsible for
securing the US$300m contract with OEMK (Oskol Elektro-Metallurgical
Kombinat ) and was the key in building the relationship with GAZPROM.

There many more people in the company whose personal worldwide
experience has influenced the growth of the company, but it might take
me hundreds of pages to describe the significant work they have for the
company. I have mentioned, in my opinion, three most important and most
affective people in MiddleSex. Once again, I have to say that the
success of any company, specially with a case of MiddleSex, lies in its
people and how these people effectively manage to bring their past
experience into the company.

Steel . The flagship operation.

At the beginning of 1996, MiddleSex entered into a trading agreement
with OEMK, one of the most modern and profitable steel mills in Russia,
for the export of up to US$300m of steel products per annum. As trading

The OEMK-MiddleSex relationship extends beyond the trading agreement.
MiddleSex monitors the day to day running of the mill, the company’s
management spends considerable time at the mill while two OEMK
representatives monitor steel trading in London on permanent basis. In
addition, OEMK has a 20 % interest in MiddleSex’s financial services
arm, Interfin. Overall, according to what I have observed, I believe
that this relationship is very strong.

Due to increasing environmental concerns and the subsequent growth of
the electric arc furnace (EAF) steel-making facilities, direct iron
reduction technology is becoming more attractive. Originally, all DRI
exports from OEMK were handled by DRI (IOM) Ltd. In August 1996
MiddleSex bought 100% of DRI Ltd. For a maximum consideration of 2.8m
and inherited a ten year exclusive world wide distribution.

DRI EXPORTS BY REGION (‘000 metric tonnes)

Region 1993 1994 1995 1996 1997 1998 (Est)

European Union 218.0 296.7 221.1 161.4 225.0 215.0

CIS - 52.1 96.3 68.8 72.5 95.0

USA 5.0 - - 37.1 42.5 57.5

Australia 33.0 26.0 0.4 44.3 28.5 35.0

Total 331.0 402.1 429.2 367.1 453.5 477.5

Since it gained the control over DRI exports, MiddleSex has managed to
significantly expand the company’s customer base. Currently, OEMK’s DRI
pellets feed steel mills in USA, Spain, Germany, Italy and Mexico.

According to my observation I believe that a vertical integration of
MiddleSex’s steel activities is possible and would be highly beneficial
for both partners. Assuming that MiddleSex takes an equity interest in
Lebedinsky GOK, the raw material supplier (such as iron ore), and

ial supplier (such as iron ore), and
increases its equity interest in OEMK, MiddleSex would have an economic
exposure to entire steel operation, from the raw material (Lebedisky),
through the steel mill(OEMK) to trading (MiddleSex/WolffSteel)

Non-ferrous Metals

Aluminium was one of the original businesses which Masoud Alikhani
injected into MiddleSex when he joined in 1993. The aluminium business
was built upon Mr. Alikhani’s trading relationship with Tadaz, the third
largest aluminum smelter in the world, located in Tajikistan.
Historically, the relationship with Tadaz was that MiddleSex would
supply the aluminium; it would pre-finance the processing and in return
it would receive the aluminium which it would then sell in the
international markets. The relationship worked profitably. However,
throughout 1996, the political situation in Tajikistan deteriorated,
trading cycles became longer and no deliveries were made in the last six
months of 1996, leaving MiddleSex owned some US7.9m(Ј 4.6m). MiddleSex
believes it will recover this debt: it has already received US$2.4m(Ј
1.5m) in late June 1997. Negotiations are well advanced to collect the
balance.

During 1996 MiddleSex diversified its non-ferrous business into nickel.
In October 1996 it entered into a short-term pilot contract with Napo
Invest and Trade Corp., a company incorporated in the British Virgin
Islands and run by Mr. Yuri Murkin, a business associate of Mr.
Alikhani, and two Russian companies: Koks, which owns the Kemerovo coke
plants and Kombinat Yuzhuralnikel, one of the biggest Russian nickel
producers.

The government recently sold its 38% in troubled Norilsk Nickel, the
biggest but also heavily debt-ridden Russian nickel producer. Following
the Norilsk example, Yuzhuralnikel could be the next to be auctioned.
Interfin, MiddleSex’s 40% owned investment, has already secured a 14.7%
interest in the Yuzhuralnikel nickel plant, which gives MiddleSex a 5.9%
indirect interest.

Overall I believe that MiddleSex is in strong position if it decodes to
increase its interest in

Yuzhuralnikel and therefore its Yuzhuralnikel exposure to nickel.
However, I have assumed that MiddleSex will only extend the trading with
Yuzhuralnikel.

Financial Services

The backbone of MiddleSex’s financial services operations is the 40%
owned Interfin (Interbank Investment and Finance Company). The remaining
60% is held by GAZPROM (20%), OEMK(20%) and Mapo Bank(20%). MiddleSex’s
financial services include:

trading in Russian capital markets;

financial advise to western companies or potential business in Russia,
and

advice to Russian companies entering western capital markets.

Established in late 1994, Interfin commenced by trading in Russian
treasury. Initial returns were good and Interfin quickly made
substantial profits, which enabled the company to start bying stakes in
various Russian companies. As a result, Interfin has built an impressive
asset base of which the company estimated to be in excess of US$300m.

n excess of US$300m.

MiddleSex - GAZPROM relationship

MiddleSex holdings - a small, London based trading group - is
advertising the world biggest producer and Russia’s biggest company
GAZPROM on cheaper ways to raise finance. The appointment came as a
result of the close contact between MiddleSex’s and Interfin’s top
management and GAZPROM. Principally the role consist of :

Providing independent advice in relation to the selection and
implementation of different fund raising strategies and regulatory
requirements of international capital markets;

Liaison with advisors, once appointed, on behalf of GAZPROM as well as
coordination of GAZPROM’s fund raising and corporate activities;

Assisting in the design and implementation of special project finance
schemes and structured long-term program of public and investor
relations aimed at strengthening GAZPROM’s position in the international
capital markets.

In returns for its services MiddleSex receives fees, depending on the
type of service provided, and determined by GAZPROM’s board, plus the
reimbursement of its expenses in connection with travel, presentation
and other expenses.

If relation with GAZPROM maintained, and GAZPROM’s current financial
restructuring and capital raising plans are carried out, I think this is
the one of the most important step for MiddleSex holding, and they are
well positioned to benefit and generate significant returns.

Conclusion.

To sum up then, taking a closer look at the Annual reports of the
companies just confirming what I have researched through different types
of magazines and newspapers, as well some official reports of the
company. Through out the official statements it is crystal clear that
company had a very big boost when Massoud Alikani has arrived and
restructured the company almost completely, as well as brought some past
experiences idea from the time he worked in Russia.

Then the company had another big growth in 1996 when the steel trading
became the flagship operation and they started to work with OEMK.